The big farms also probably by now need 2c-3c kWh electric 'at least' to boot!
Indeed, recent reports suggest that load balancing arrangements with local power grids and other forms of subsidized electricity are very important for mining operation margins. That's another avenue where small scale miners simply can't compete. Now doing the math (philipma1957 in another thread did the math) using Bitmain's new AntRacks monster units that ship 3/2021 supposedly and NOT counting
the import/tariff of 26.7% to the USA, nor shipping, nor install fees, and NO electricity.
Well, the price to just have the equipment to make 1 BTC a day is 'supposedly' by the math: $4,500,000.00 USD investment.
That's truly incredible. The capital barrier to entry is even higher than I thought!  |
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Once bitcoins attained a high enough value, mining them became feasible as a professional, industrial scale business activity. Once that dynamic took hold, economies of scale quickly became the dominant factor in a very competitive mining industry.
Can you point me to data that shows that economies of scale are a dominant factor? I would love to see it because it is important to know. Look at how the hash rate and the composition of the mining network have progressed over time. As hash rate rose exponentially, casual home miners were forced off the network due to lack of profitability: If you’re mining bitcoin from home, you’re now losing moneyIt's no coincidence that during China's rainy season, half of the world's mining power is concentrated in southwestern China due to its extremely cheap hydro-electric power. The large hash rate fluctuations concentrated around China's seasons is indicative of the dynamic. Mining profitability margins are low enough now that miners generally need to relocate to regions where electricity is cheap -- obviously not an option for casual miners. This is why the world's largest mining farms are located in places like Russia, China, and Washington State (US). Those economies of scale -- in addition to considerations like cheaper and faster access to new generation mining chips -- are why there are single mining farms like Bitmain's Dalian farm that supposedly control 3% of the hash rate. How could small scale miners ever compete in that environment, aside from rare cases like free electricity? |
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I am not an expert, but it seems to me it would be reasonable to claim that all transactions on a Lightning channel are not realized until the channel is closed. That is when you find out the actual amount transacted, plus how else do you account for transactions in which you are just an intermediary?
If that is the case, then Lightning makes taxes on cryptocurrency transactions much simpler.
If you're updating channel state in exchange for money or goods and services, that's a difficult legal argument to make. Gains and losses are obviously being realized when those state changes occur. I suspect that the IRS views value held on the Lightning Network as convertible virtual currency, just the same as bitcoins -- and subject to the same tax rules. |
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Yes.Once bitcoins attained a high enough value, mining them became feasible as a professional, industrial scale business activity. Once that dynamic took hold, economies of scale quickly became the dominant factor in a very competitive mining industry. This dynamic applies to all economically productive activities, not just Bitcoin mining. It's a simple economic truth. A consolidated mining industry was always inevitable if Bitcoin were to catch on in society.
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Where do you store your cold wallet? A safe in your house? Also, where do you store your backup recovery phrase? Seems risky to store them both in the same place right? Fire could take both out.
I'm glad you've got your thinking cap on. Very few people consider the risk of natural disasters. A first step you could take is implementing fire and water-resistant housing. The "Cryptosteel Capsule" is the most popular solution I've seen. A cheaper means to the same ends is to store encrypted copies of your backup in multiple physical locations. You could keep one in your safe at home, one with a trusted family member, one in your safe deposit box at the bank, etc. Depending on the amount, you might even want to start memorizing seed words rather than recording them down in tangible forms. I wouldn't risk trusting memory. Mine has devolved so much just in the years I've been using Bitcoin. I no longer have any faith in my ability to remember 12 words in specific order for any significant period of time. And then there is the risk of things like head injuries too. I prefer the idea of hiding words in plain sight, using means of pattern recognition that only you -- and not an adversary -- can recognize. |
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I did take a look at possible causes for an account being disabled....and it's because of the state I live in.
New York and Hawaii residents are prohibited from most platforms -- no surprise there, given their draconian regulations. However, Bittrex also includes a few unusual states on their ban list like Vermont and Connecticut. I'm assuming they don't hold the required money transmitter license in those states. How the hell do I find out what my state laws are regarding crypto?
This is the best state-by-state legal resource that I've found, last updated 6 months ago: State Regulations on Virtual Currency and Blockchain Technologies |
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Thanks for the help guys, I've just submitted a help request to both Coinbase and Gemini, so hopefully they get back to me soon so I can get this sorted out. If I recall correctly, the total amount that was traded couldn't have been more than $300 total, as I only had 0.01 ETH last I checked in my offline wallet. It is entirely possible that I did trade at a loss, but I just want to be certain that I don't actually owe these people anything.
We can't know for sure whether you had any tax liability without knowing the exact timeline. Did you only buy in 2017, and then start selling in 2018? If so, you probably had no taxable net gains for the year. Even so, assuming you were required to file a tax return for 2018, you technically were required to report these transactions on Form 8949 and the net gain/loss on Schedule D. The good news is that these amounts are so low that you are unlikely to be on the IRS' radar, and your activity is unlikely to have thrown off your tax liability by much, if at all. I would still recommend recovering your trading history and running the numbers, if only for peace of mind. In this situation, it's probably not worth poking the bear and amending for such a low level of activity. |
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Keep in mind that some cryptocurrencies that are labelled/classified as securities might be covered in the marked-to-market rule of the IRS which treats the Capital Gain on a 60-40 basis. Capital gains in this rule is treated as 60% long-term capital gain and 40% short-term capital gain regardless on how long have you held that crypto. Bro the taxing laws in the US are so messed up.  The mark-to-market election -- which provides huge tax advantages for those who qualify -- is unlikely to apply to anyone here. It's reserved for securities dealers, people that hold securities as capital assets with the intention of brokering them to others. Ordinary traders and investors do not qualify, and must report all their transactions as specifically either short-term or long-term proceeds: The mark-to-market rules are generally applicable only to dealers. Historically, Sec. 475 has defined a “dealer in securities” as a taxpayer who regularly purchases securities from or sells securities to customers in the ordinary course of a trade or business. In this regard, the securities owned by a dealer represent inventory held primarily for resale.
Distinguishing a dealer from a trader or investor is normally not difficult. A dealer makes money by serving as a middleman—a market maker—holding securities as inventory and buying and reselling securities to customers. A dealer’s income is derived from the services provided, charging a markup on buying and reselling rather than obtaining profit from price fluctuations in the securities. A stockbroker who owns shares that he or she sells to customers at a market price plus a commission would be a bona fide dealer. Floor brokers and specialists at a stock exchange are people whose business it is to put investors together and who properly receive ordinary income treatment as dealers.
Taxpayers that have customers are normally treated as dealers, while taxpayers that do not have customers but trade for their own account are normally treated as investors or traders. |
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My concern is that ShapeShift is just offloading functionality onto other partially centralized -- even if non-custodial -- services, who themselves may end up being targeted by regulators. One of their partner exchanges is Bancor. The hack of their "DEX" exemplifies the type of thing I'm talking about: The Bancor hack involved a smart contract that was compromised by hackers who had its private key. Since the hackers had the private key, they had complete control of the funds so it was not some complicated exploit. The funds were drained from a smart contract that Bancor created. Bancor had to freeze its trading on their BNT platform in order to prevent any further withdrawal of funds. The irony here is that if Bancor was a DEX, it should not be able to freeze user funds. This is more a feature of centralized exchanges.
According to Bancor, the ability to freeze the accounts was built into the Bancor protocol “to be used in an extreme situation to recover from a security breach.” This allows limiting the amount that the hackers could withdraw during a breach. So Bancor has shut down its exchange while it was under investigation. |
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The fees per block appears to vary quite wildly, from about 0.5BTC to about 1BTC. If I had to guess, miners are primarily concerned about the block rewards and aren't exactly considering the transaction fees together with it since it can be so volatile. That will change quickly due to the shape of Bitcoin's supply curve. How about after three more halvings, when the miner subsidy is only 0.78125 BTC? Even today, 0.5-1 BTC is 8-16% of the subsidy. That's a significant chunk of revenue in an increasingly competitive business. I would think that miners care quite a lot about fees at this point. Bitcoin's primary purpose is to act as a currency for transaction and it isn't supposed to be like the speculative assets which are meant to be held for long periods of time. While some people do treat it like that, it does nothing to help to promote Bitcoin as a currency of the future. If everyone stop transacting Bitcoin, the value of Bitcoin will certainly crash.
I agree -- there needs to be a minimum level of transaction activity for Bitcoin to have value. I don't believe that hoarders are the downfall of the network, however. Fee revenue is determined by demand for limited block space, not the number of liquid bitcoins on the network. I have a hard time believing the entire network will ever just collectively refuse to spend, especially as society enters a future where people are becoming increasingly skeptical of fiat money. Bitcoin may become crucial for settling very large accounts (B2B, governments) and that may end up being the backbone of mining fee revenue. |
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How recommendable is the Bitbox02? Does anyone have it? Do you receive updates?
I don't own it, but I've been considering buying one. It comes with high ratings from Bitcoin.org, supports Bech32 addresses, and is open source. They release firmware updates every month or two. Keep in mind that BitBox02 is Bitcoin-only. If you plan to store altcoins, you should choose something else. |
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I think I messed up though. I opened a binance account which I know is not based in Canada. I bought btc using binance by buying usdt from Canadian dollars.
Now, as I have been learning more I realize that it might not be a good idea to use binance to buy btc and that I should be using something like Newton or shakepay to buy. I am looking to hold and stick with ltc, eth, btc in the long run. I'm not much interested in trading at this time.
My question: is it possible to transfer my holdings in binance to something like Newton and can somebody enlighten me on the process?
Here is Binance's guide on how to withdraw cryptocurrency from your account: How to Withdraw from BinanceI've read that Newton is a good fiat onramp for Canadians -- certainly cheaper than buying with a credit card and incurring cash advance fees. However, unless you plan to sell in the immediate future, there's no need to send your bitcoins there. It's ideal to avoid using exchanges to store your coins. They could get hacked, and you could lose everything. If you're planning to hold your bitcoins, why not withdraw to a wallet you control? I also know that it's best to store my btc in an offline hardware wallet. If btc dips again and I wanted to buy more quickly, does Newton or shakepay allow me to do that?
They both allow you to withdraw to a hardware wallet. What type of wallet you use for storage is up to you. |
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Exactly this. I will never trust a device that someone else holds the key for - ever. This is a fail in all respects & I urge everyone to avoid it until they change this anti-feature.
Trezor for the win.
we also have a single-sig option coming soon. Is there an ETA? I understand the motivation behind the server key, and it made sense for a web wallet implementation. It obviously makes less sense for a hardware wallet. |
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Someone tell I cannot participate in private sales because I am not an accredited investor, but I am also not an American citizen.
Is there any non-accredited investor who joined a private sale and signed a SAFT agreement although he/she is not an American citizen?
It technically depends which SEC regulation the SAFT is tied to. If it's a Reg A+ offering, ordinary (non-accredited) investors worldwide can invest. More likely, this is a Reg D offering where only accredited investors can invest. There are no exemptions for non-US citizens. It doesn't matter where you live. In other words, if there is an accredited investor requirement, it applies to US and non-US citizens equally. |
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Thanks all for the answers!
It is definitely a significant amount of money, so I am really concerned about doing things right from the beginning! I don't think I want to declare it as "other income", not to run into the risk of raising suspects about it being dirty money (this is also true when moving a large sum from an exchange to my local bank account I guess). And I am totally OK with paying taxes on the whole sum ($0 cost basis), as it won't significantly affect taxes in my case. I forgot about the issue of mining income. Unfortunately, mining income is taxable at the time of receipt based on the fair market value of the mining rewards. It is considered self employment income. Selling the mining rewards down the road triggers a second taxable event when you realize a capital gain or loss. A competent tax advisor may advise you to amend prior year returns to report your mining income, depending on the facts of your case. I would assume that not all tax advisors are equally qualified on this specific topic: are there any sufficiently experienced that somebody can suggest?
I can't vouch for any service personally, but a few internet-based tax consultancies like TokenTax have emerged over the past few years. Their more expensive services are made specifically for people like you -- those with missing trade data, lost bitcoins, unknown cost basis, and other complex situations. |
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How will the onboarding process look like? If a new person wants to buy BTC, they can't even send the BTC from the exchange to their own wallet because the mempool is always on his limit. What limit is that? Should exchanges also trade LBTC only in the future? What they should do is support customer LN deposits and withdrawals. And more importantly, exchanges should open payment channels with one another since customers withdrawing from exchange to exchange is a huge source of network congestion. Take it all off chain! But OP has brought up a legitimate concern here: LN is not an ultimate scaling solution while bitcoin adoption is an emerging situation and scaling is needed asap, as a person who has newly joined this community, OP has every right to ask whether there is such a vision at all or not.
I fail to see the urgency. Many people will complain that Bitcoin is somewhat inefficient and expensive to use -- but that's by design. we suffer from a conservatist mindset that is only concerned about the security of bitcoin whales. It's not about protecting Bitcoin whales. It's about exercising duty of care. |
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I have a bunch of bitcoins, result of mining and buying from many years ago. Now my problem is that I have not kept track of transactions and cost basis of those days. And I have also changed wallets a few times in the meantime: all I know is that the most recent transactions are dated 2018 when I moved all my bitcoins to my current hardware wallet.
My question is simple: how am I supposed to pay taxes if I sell my coins? Is it admissible to declare a cost basis of 0 on my tax declaration, and pay capital gain taxes on the full sale amount? I don't see it being a problem, as it would basically correspond to paying the most possible taxes on that amount, but I am not sure if I am required to attach documentation when filing taxes, for instance the cost basis or proof that I held them long enough to qualify for long term capital gains. Any suggestions for good sources of information on this? Good tax advisors for bitcoin?
Thanks!
I'm not a lawyer, but here is my opinion. If you report a cost basis of $0, the IRS won't mind. It's admissible. As you said, you would be overstating your tax liability, so you can't be penalized. If you don't report anything to the contrary and they haven't received a 1099 reporting the basis, they assume it's $0 anyway. Whether it's advisable to do that is another story. If you're talking about very large sums of money, it might be worth the trouble of parsing through your wallet and exchange histories to determine your actual basis. The tax savings might be very significant. If you send outputs last moved in 2018 to an exchange to sell them, that confirmed blockchain transaction is useful documentation of long term gains, since the outputs hadn't been moved in well over a year prior. You won't need to attach this to your tax return, but you'll definitely want to keep a copy of it in your records, along with an export of your exchange trading history, in case the IRS ever comes knocking. |
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There are additional financial incentives at play too, given the amount of value at risk across the ecosystem. Those who hold significant amounts of bitcoin and who are capable of auditing the open source software they use have a strong financial interest in doing so. This should act as an additional deterrent against exploits. Whenever there is a discussion about cheating or attacking the Bitcoin infrastructure, be it by introducing malicious code, performing a 51% attack, or in some other way, people usually focus on the fact that the attackers have an interest in seeing bitcoin be successful. Therefore, there would be no interest in performing an attack. Why? Because they are holders themselves. But what if they aren't, and their agenda, for some reason, is (or becomes) to cripple the network? Usually when any crime is committed, the first suspects are those closest to the victim. The people they trusted the most. You're talking about the incentive that Bitcoin holders have against attacking Bitcoin, or a popular Bitcoin software. I'm talking about something different. Bitcoin holders are taking a risk by holding their bitcoins in any given wallet. To protect that value, they have incentive to audit the software, if they are able to. I assume that, on average, a wallet like Bitcoin Core is perused far more carefully by far more people than other open source softwares that secure less (or no) value. |
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The first is Wyre. With their Wyre Checkout widget, you can invoice your clients in fiat, they can pay via debit card or Apple Pay, and you'll receive bitcoins or other cryptocurrencies. You can use Wyre's API to exchange fiat and cryptocurrency within your own account. AFAIK, In the USA, This service needs users to provide their ID, so this process may be slow and may take a couple of days depending on how KYC verification is done (will take longer if it is on weekends.) I doubt you'll find a scalable fiat-to-cryptocurrency gateway in this day and age that doesn't require KYC. Each of his clients would have to complete a one-time KYC verification, yes. Wyre has a customer onboarding process for this. |
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To be honest, the safest place to store seeds is a safe deposit box in a bank, because I keep my seed there along with other securities. A safe deposit box is very secure against most adversaries, but against an adversarial government -- probably not. I'm at least slightly paranoid about a Bitcoin version of Executive Order 6102 -- where the government banned gold ownership, forced citizens to sell their gold to the government, and confiscated it from those who didn't comply. If your seed is sitting in a safe deposit box, I highly recommend encrypting it. Better safe than sorry! |
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